8.	Stock Options and Warrants

Stock Options

In April of 2014, the Company made a stock option grant to purchase 25,000 shares of the Company’s common stock for services rendered by a director of the Company. Terms of the stock option grant require, among other things, that the individual continues to provide services over the vesting period of the option, which is one year from the date of grant for the director service stock option. The exercise price of the option is $2.38 a share, which was the closing price of the common stock at the date of grant being approved. The Company determined the fair value of the stock option granted using the Black Scholes model and expenses this value monthly based upon the vesting schedule of the stock option award. For purposes of determining fair value, the Company used an average annual volatility of one hundred seventy eight percent (178%), which was calculated based on the closing price of the Company’s stock over the preceding five years. The risk free rate of interest used in the model was taken from a table of the market rate of interest for U. S. Government Securities for the date of the stock option award and the expected term. The Company used the simplified method to determine the expected term of the options due to the lack of historical data. The total fair value of the stock option granted was determined using this methodology to be $57,425, which is being expensed following the date of grant based on the stock option vesting schedule.

In April of 2014, the Company made two stock option grants each to purchase 25,000 shares of the Company’s common stock to two new Company employees. Terms of the stock option grants require, among other things, that the individuals continues to provide services over the vesting period of the option, which is four years from the date of grant for each employee stock option. The exercise price of the options is $2.71 a share, which was the closing price of the common stock at the date of the grant being approved. The Company determined the fair value of the stock option granted using the Black Scholes model and expenses this value monthly based upon the vesting schedule of the stock option award. For purposes of determining fair value, the Company used an average annual volatility of one hundred seventy eight percent (178%), which was calculated based on the closing price of the Company’s stock over the preceding five years. The risk free rate of interest used in the model was taken from a table of the market rate of interest for U. S. Government Securities for the date of the stock option award and the expected term. The Company used the simplified method to determine the expected term of the options due to the lack of historical data. The total fair value for both of the stock options granted taken together was determined using this methodology to be $133,200, which is being expensed following the date of grant based on the stock option vesting schedule.

In May of 2014, the Company made a stock option grant to purchase 25,000 shares of the Company’s common stock to a new Company employee. Terms of the stock option grant require, among other things, that the individual continues to provide services over the vesting period of the option, which is four years from the date of grant for each employee stock option. The exercise price of the options is $2.40 a share, which was the closing price of the common stock at the date of grant being approved. The Company determined the fair value of the stock option granted using the Black Scholes model and expenses this value monthly based upon the vesting schedule of the stock option award. For purposes of determining fair value, the Company used an average annual volatility of one hundred seventy eight percent (178%), which was calculated based on the closing price of the Company’s stock over the preceding five years. The risk free rate of interest used in the model was taken from a table of the market rate of interest for U. S. Government Securities for the date of the stock option award and the expected term. The Company used the simplified method to determine the expected term of the options due to the lack of historical data. The total fair value of the stock option granted was determined using this methodology to be $58,975, which is being expensed following the date of grant based on the stock option vesting schedule.

In May of 2014, the Company made a stock option grant to purchase 125,000 shares of the Company’s common stock to a newly hired officer of the Company. Terms of the stock option grant require, among other things, that the individual continues to provide services over the vesting period of the option, which is four years from the date of grant for each employee stock option. The exercise price of the options is $2.40 a share, which was the closing price of the common stock at the date of grant being approved. The Company determined the fair value of the stock option granted using the Black Scholes model and expenses this value monthly based upon the vesting schedule of the stock option award. For purposes of determining fair value, the Company used an average annual volatility of one hundred seventy eight percent (178%), which was calculated based on the closing price of the Company’s stock over the preceding five years. The risk free rate of interest used in the model was taken from a table of the market rate of interest for U. S. Government Securities for the date of the stock option award and the expected term. The Company used the simplified method to determine the expected term of the options due to the lack of historical data. The total fair value of the stock option granted was determined using this methodology to be $294,500, which is being expensed following the date of grant based on the stock option vesting schedule.

Stock option expense for the quarter ending June 30, 2014 was $122,793. Of this amount, $20,410 related to stock options for personnel involved in R&D activities and $102,383 related to stock options for outside directors, officers and management of the Company.

Warrants -There were no warrants for services granted during the quarter ending June 30, 2014. The warrants issued in connection with the sale of units of common stock were for cash value received and as such were not grants of compensation-based warrants.